Methods of Payment in International Trade

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Do you know about methods of payment in international trade?

Payment is critical for every business. However, payment for international transaction is quite different from obtaining money from local sources. Some additional layers of influences may be observed with the international trade. Certain amount of risk has been associated with the international trade. Therefore, exporters like to get payment through some specific methods of payment in international trade. Risk amount can be limited to certain level through following processes.

In this article, information has been given on the methods of payment in international trade.

Open account

Through open account, you may come across one of least effective methods of payment. However, the method is very much preferred by the buyers. In this process, materials are sent and documents are offered to the buyers at the same time. Payment for the goods is done within time. Therefore, entire process is completely controlled by the buyer instead of seller.

In case the buyer does not offer money on time then terms can be set for the future transactions. Therefore, it is a method that holds benefits for the buyer instead of sellers. It is better to consider about this method of transaction when the seller is completely sure about the intention of buyer.

Open account may be effective in specific kind of market. To eliminate financial risk, credit insurance can be considered. Lots of specialized insurance agencies are available. It is possible to take help from them to get reimbursement in difficult situations.

Advanced Payment

For the exporter, it is not possible to find better methods of payment in International trade than advanced payment. However, advanced payment is not an advantageous process for the buyer at all. Payment is generally received from the buyer in full or certain percentage before the goods has been shipped for the destined location.
Both above methods of payment have been considered two extremes. It is necessary to reach at an effective commercial method that can be placed in middle of them. Benefits of banking products like letters of credit and bills of collection can be taken for a comfortable transaction.

Methods of Payment in International Trade

Bill of Collection

In comparison to open account, bill of collection can be considered as a secured mode of payment as the money is transferred from the buyer’s bank to seller’s bank. Process is generally started as the shipment is transferred to the buyer. In case the buyer does not pay the amount then title of the product may not be given. Products may not be obtained by the buyer. Based on the seller’s request, action is generally performed by the buyer’s bank. Therefore, disputes can be solved in the process easily. Behind this method, it is possible to notice certain rules and regulations.
Documents against payment

Immediate payment is taken from the buyer with these methods of payment in international trade. The process can be recognized with the term called “cash against documents”. Release of the good is done by the buyer’s bank as they receive payment. In case the goods are shipped then title is retained by the exporter until payment is given.

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